The Work of Bond Rating Agencies Is Important Because

question 39

Multiple Choice

The work of bond rating agencies is important because

• A) They ensure that all principal and interest payments on bonds issued will be made.
• B) The rating they assign proves the quality of a particular debt instrument.
• C) They affect the debt's marketability and hence its interest rate.
• D) Bonds cannot be issued without them.

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Definitions:

Accounting Profit

The financial gain calculated by subtracting total explicit costs from total revenue, representing the net income reported on a company's financial statements.

Explicit Costs

Direct, out-of-pocket payments for expenses incurred in conducting business, such as rent, salaries, and materials.

Economic Profits

The disparity between the amount a business earns in total and the sum of its outright and inferred expenses.

Explicit Costs

Direct, out-of-pocket payments for goods and services that are used in the production of other goods and services.